Govt. and RBI head on for teaser loans

The Government and Reserve Bank of India might go hand in hand most of the times but they have different point of views when it comes to “teaser” home loans. In the Economic survey for year 2010-11, the government has shown considerable confidence in the efficiency of Teaser home loans.

Earlier the Apex Bank expressed its concerns about the teaser loans offered by the State Bank of India but the government is very much in favor such loans.

The Economic Survey for Year 2010-11 said, “The response of the market to this (terraced loan) was very good….Defaults on these (loans) have been negligible and cases of foreclosure rare. Also, these loans played a major role in promoting inclusiveness. Around 90 per cent of the home loan borrowers were first time home buyers.”

Under the teaser loan scheme the banks charges a fixed rate for first few years of re-payment and then offers floating interest rates for the years to follow.

The primary concern that the central bank pointed out in its monetary policy review is that it might be difficult for some borrowers to handle the burden of the normal interest rates as they are considerably higher than the rates applicable in the initial years.

The survey said that the teaser home loan scheme has prompted many new home buyers to enter the market. The survey also advocated the fact that in order to offer customers with range of options, the banks must be given freedom to introduce new products.